Individual Investors and the Financial Crisis

This paper studies the trading behavior of individual Chinese investors before and during the recent financial crisis.We have three major findings: (i) individual investors did not withdraw their capital from the equity market during the crisis; instead, they reduced investments following portfolio gains; (ii) the asymmetric net‡ flow decisions are strongly influenced ‡by the disposition effect, in the absence of tax effects; this fi nding holds over our entire sample period and it is even stronger during the crisis; (iii) individual investors revised their portfolios to hold relatively safer and more liquid stocks.